GOLDEN AGRI-RESOURCES LTD
E5H.SI
Bracing for higher depreciation
- Golden Agri’s 1H15 core net profit of US$110m was broadly in line with our expectations, at 65% of our full-year forecast, but met only 47% of consensus forecast.
- Core net profit fell 27% yoy due to weaker prices for its palm products and lower output. Reported earnings fell short due to US$54m net forex losses.
- The positive takeaway is the better downstream performance but this was offset by weaker FFB output.
- We downgrade our earnings forecasts for FY16-17 by 26-30% to reflect a higher depreciation charges following the adoption of accounting changes for biological assets effective 2016. This cuts our target price to S$0.28 (based on 15x CY16 P/E or its historical avg P/E).
- We maintain our Reduce call given our concern over weaker CPO prices.
1H15 earnings impacted by lower output and price
- Golden Agri posted weaker 1H15 core earnings due to lower selling prices for its palm products and production. FFB output from its nucleus estates fell 4% yoy in 2Q15 and 5% in 1H15 due to dry conditions at some of its estates last year.
- The ASP achieved for CPO declined 23% yoy in 2Q15 to US$650 per tonne, in line with global prices. The lower production raised its average production cost to US$308 per tonne in 2Q and US$314 per tonne in 1H15. Stocks were lower at 465k tonnes at end-June compared to 498k tonnes at end-Mar as the group reduced inventories ahead of the implementation of the CPO levy.
- Its palm and laurics business posted a 38% jump in 1H15 earnings as it benefited from the potential levy implementation.
- Its oilseeds crushing business in China stayed profitable due to positive crush margins.
Main takeaways from the teleconference
- The group maintained its output growth guidance of 0-5% but indicated that El Nino could lead to lower output. Some of its estates have seen lower rainfall which could impact next year’s output.
- It is building two 300,000tpa biodiesel plants in Indonesia which will be ready by 2016 and will benefit from Indonesia’s biodiesel policy.
- It guided that the IAS41 amendments could raise its depreciation charges and reduce its net profit by US$77m in FY16, larger than our rough estimate of US$32m.
- We lower our earnings to reflect this.
Maintain Reduce with lower target price of S$0.28
- We maintain our Reduce call given the group’s unexciting near-term earnings prospects stemming from weaker CPO prices and slower output growth.
Ivy NG Lee Fang | http://research.itradecimb.com/ CIMB Securities 2015-08-13
0.28
Down
0.38
